5 Mistakes That Create Debt
This article outlines five common mistakes people make that leads unnecessarily to debt. Establish a couple of elementary good habits and you will never be plunged into debt.
Often people indulge in negligent spending habits with the result that they are faced with a horrifying number of debt repayments monthly – items such as bond repayment, vehicles, school fees, university fees and credit cards.
Debts certainly can be managed – if consumers avoid the following five common debt-creating mistakes.
1. Living beyond your means
Ultimately, the only way out of debt is to spend less than you earn. If you live without a budget you are bound to break this rule. You should understand that getting out of debt and staying that way depends on creating a monthly budget and sticking to it.
The budget must be realistic and should account for your debt payments plus extra in order to extinguish the debt over time. If your monthly income cannot cover these then you need to change your spending habits.
2. Paying the minimum on debt
Making the minimum required payments on debts (credit cards, store cards, etc.) is usually the way people get caught up in a spiral of ever-increasing debt. If you are unable to make the payment in full, make sure you pay as much as possible.
The trouble is, making minimum payments only results in interest charges, which result in massive and ever-escalating debt in future. If you have made this mistake in the past, begin your debt repair by paying your credit card in full each month. Adjust your budget to accommodate this. Lower your expenses and find way to earn extra money to get your on the road to financial health.
3. No payment priorities
Every month you have monthly payments to make. If you do not prioritise these payments properly and you pay them in no particular order, you may be heading for trouble. Pay off your credit card first – no excuses. Then tackle your store card payments, then the home, vehicle, lights and water, rates and taxes, medical aid and other payments. Get manual control of your payments so you can pay them in strict order according your priorities. Have as few debit orders and stop orders as possible as this takes the prioritising power out of your hands.
4. Abusing your credit card
Credit card holders the world over tend to abuse their credit cards and this leads to ever increasing debt. In fact, the companies that supply these credit cards actually depend on people abusing their credit cards for profit. The annual interest on credit card debt is huge. Never pay something by credit card if you have the ready cash to pay for it or a debit card you can use. When paying municipal accounts and for groceries should be done with cash or with a debit card. Using your credit card for this could make the debt on the card get out of control.
5. Incurring debt to pay off debt
Finally, getting into further debt in order to pay of debt almost always leads to ever-increasing debt – and endless cycle of debt that ends in tears. Examples include taking out a bank loan to pay off one you have received from another bank. If you are in this situation, get help from a financial advisor, credit repair company or debt counsellor as soon as possible
Most of us need debt in order to buy a house, vehicles, etc. But planning and budgeting is something none of us can do without. Alter your spending habits to eliminate debt and enjoy the freedom of living debt-free.
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All info was correct at time of publishing